How Effective Compliance Management Can Avoid Supply Chain Disaster

On June 21, a bus carrying passengers from a P&O cruise ship on an excursion in Vanuatu crashed into a local bus, injuring 12 of the Australian vacationers and killing 3 locals. According to at least one law firm, the cruise passengers are in a strong position to sue, which could result in P&O having to pay out a “considerable sum”. Apparently P&O had the passengers sign legal waivers which attempted to limit the liability of the cruise line for actions of their agents onshore, something which is reportedly unenforceable under the Australian Consumer Law.

The crisis facing P&O over the Vanuatu bus crash is a real life example that emphasises the importance of managing risk and compliance of your entire supply chain, even internationally, in order to avoid wide-ranging negative consequences. In this case, lives were lost and others injured due to two major factors: 1) An apparently lax arrangement between the primary operator (P&O) and their supply chain (the local driver/bus company), and 2) A ‘legal waiver’, which is disputed as being actually legal, in order to cover the lax arrangement. Both of these are symptoms of an incomplete or unenforced compliance system, which might have either prevented the tragic injuries and deaths or at least better covered P&O from the potential legal and public opinion fallout.

Avoiding the Avoidable

The consequences of failing to adequately manage the compliance of your supply chain can touch every part of your business, including regulatory fines, operational losses, reduced market position, reputation and brand damage, and legal action. This is largely (and in some cases completely) avoidable, so it’s baffling why any organisation would choose to put themselves in such a situation.

FM Global CFO Jeff Burchill suggests that a primary reason that supply chain disruptions are still so common among businesses is that supply chains are now more complex and distributed than ever. “With globalization, business is increasingly conducted in a borderless, more interconnected manner, which results in steady loss of control and lack of visibility into supply chains. As companies seek out lower costs in developing markets, their businesses often become more vulnerable.” When establishing your supply chain it’s crucial that you have a list of qualified and appropriate suppliers who meet all appropriate licensing conditions. You have a responsibility to perform due diligence and monitor that these suppliers comply with legislative and commercial obligations.

Practical Steps

There are plenty of practical steps that you can take to avoid this vulnerability and make sure that your organisation doesn’t end up in the same situation that P&O now faces, and it all starts with setting up a robust compliance system. A few things you should look for in such a system are:

Ubiquity – Your auditing system should allow for both internal audits and external audits from multiple sources. This includes your initial setup for questions and possible answers, which should be easily understandable from any external auditing source without the need for extensive explanations or clarifications.

Risk Assessment and Notifications – In order to make your auditing process efficient enough to cover everything that needs to be covered, the software you use should allow for risk levels to be assigned to each and every area and then sorted by priority. Many organisations still go through their auditing in a linear way, leaving the possibility that a critical action which needs immediate addressing might not be found until they’ve already been through multiple areas that don’t have any actions that are necessary to take right now. After the risk levels are assigned, there should be a notification system in place that alerts the proper party as soon as a discrepancy is found.

Simple, Real-Time, Mobile Assessments – Running a report and addressing issues days or weeks after a problem is initially discovered can be too late. Comprehensive compliance should include a simple-to-use mobile system that allows consistent audits anywhere at any time and reports issues in real-time through an online system that’s accessible from anywhere.

Collaborative Corrective Action Management – When an auditor identifies an issue that requires corrective action, the communication between them and the facility should be crystal clear and immediate. The issue is found by the auditor, the facility establishes the corrective action needed and takes it, and the auditor can see evidence of the correction and close or resolve the issue. This saves time, money, and ultimately any escalation of the issue that might cause even more problems.